March 30, 2017
On Friday March 24, 2017 Illinois Governor Bruce Rauner vetoed Senate Bill 2437, legislation that was intended to increase city funding to help prevent the City of Chicago’s Municipal and Laborers’ pension funds from going insolvent within the next decade.
The legislation had passed with large bipartisan majorities in the Illinois House and Senate. This was the City’s second attempt to improve the funding status of its Municipal and Laborers’ Pension Funds. The Illinois Supreme Court struck down the previous legislation that reduced benefits and increased employer and employee funding in March 2016. You can read more on the previous pension reforms and the Illinois Supreme Court ruling here and here.
Senate Bill 2437 would have increased employee contributions by three percent for new hires and would lower the eligibility age for full retirement benefits from 67 to 65 for new employees hired on or after January 1, 2017. Employees hired after January 1, 2011 but before January 1, 2017 would have the option to accept a lower eligibility age of 65 for full benefits in exchange for increasing their payroll contributions by three percentage points to 11.5%. The City’s contributions would ramp up over a five-year period with actuarially based contributions to begin in 2022. The City planned to pay for the increased contributions to the Municipal Fund through a newly enacted water-sewer utility tax and to the Laborers’ Fund through the 911 surcharge. You can read more on the water-sewer utility tax here and the 911 surcharge here.
Governor Rauner stated in his veto message that the legislation “will create another pension funding cliff that the city does not have the ability to pay... [and] will result in increased taxes on Chicago residents.”
Legislation to reform the City of Chicago’s Police and Fire Pension Funds was also vetoed by Governor Rauner. However, the Illinois General Assembly overturned the Governor’s veto and the bill became law on May 31, 2016. You can read more on the reforms made to Chicago’s Police and Fire Pension Funds here.
Because the legislation to reform the Municipal and Laborer’s Funds was approved by the 99th General Assembly, which ended on January 10, 2017, the Senate and House cannot override the Governor’s veto. Because of this, identical legislation, Senate Bill 14, was approved by the newly seated Illinois Senate on January 25, 2017 by a vote of 38-11. The legislation is currently in the Illinois House Personnel and Pensions Committee.
The City of Chicago’s Chief Financial Officer Carole Brown attempted to ease investors’ concerns following the Governor’s veto during an investor call, stating that the City is optimistic that veto-proof passage of the legislation will be approved by early April 2017.
The Civic Federation will continue to monitor this legislation as it moves forward in the Illinois General Assembly.